Bullion futures trade resumes after 41 years

Futures trading in gold and silver began in India "" the world's largest gold buyer "" after a gap of more than four decades today, giving bullion traders the option of hedging against price fluctuations.

The Ahmedabad-based National Multi Commodity Exchange of India Ltd (NMCE) will provide hedging and trading facilities in bullion futures from seven cities across India "" New Delhi, Bombay, Ahmedabad, Indore, Cochin, Kolkata and Chennai.

Consumer Affairs Minister Sharad Yadav formally inaugurated gold futures trading by placing the first order on the terminal of Geojit Infofin, a leading member of the NMCE, at Rs 5,885 per 10 gms of gold for December 15 delivery. He also placed the first order for silver at the same terminal.

The NMCE is India's first de-mutualised electronic multi-commodity exchange. By adding gold and silver to the list of 47 agricultural and non-agricultural commodities traded by it, the NMCE has joined the ranks of the best international commodity exchanges, such as New York-based COMEX, Tokyo's TOCOM and Shanghai Gold Exchange.

India had a reaso-nably thriving bullion (gold and silver) futures market before it was banned in 1962 through the Gold Control Act.

However, the gold trade was partly liberalised in 1998-99 through the gold deposit scheme which allowed specified parties like scheduled commercial banks to enter into forward contracts in gold.

But since it was still a restrictive policy, the full benefit of market-based risk management and price discovery functions were not available to public. This flaw has now been removed.

India is the world's largest consumer of gold at 800 tonnes a year. It is estimated that Indian bullion traders and speculators hedge and speculate in gold futures to the extent of around Rs 1,000 crore. The size of India's gold jewellery market is over Rs 40,000 crore a year.

According to NMCE managing-director Kailash Gupta, the Indian wholesale traders, fabricators and investors will now have an effective tool to hedge their price risk in the international market and, thus, play a dominant role in determining the international gold prices.

The NMCE has kept the unit of trade and delivery of gold at 100 gms. Only .999 finesse gold and silver will be traded.

Tie-ups are being worked out with some of the major international banks and logistic companies, such as Brinks Arya and Group IV Securities, for delivery.

Yadav announced at the inaugural function that futures trading in wheat and rice would also be launched soon by the NMCE, which is a Central Warehousing Corporation (CWC)-led exchange with a current membership of 89. Its present network covers 25 cities and the commodities include oilseeds, oils, metals and plantation crops.

The NMCE has adopted the demutualised exchange format where the ownership, management and trading are with three different sets of people. The adoption of latest technology permits a high degree of transparency, NMCE sources said.

KN Kabra, who headed the committee that recommended liberalisation of the commodities market by allowing futures trading in several commodities, including gold and silver, told Business Standard that he expected this mode of trading to succeed.

Asked whether speculators could manipulate the prices to their advantage through futures trading, he said this was unlikely because trading in precious metals required big money. "This would be a big market players' casino," he quipped. gold rush

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India consumes 800 tonnes of gold and 3,500 tonnes of silver a year

13,000 tonnes private hoards of the yellow metal estimated

The size of India's gold jewellery market is over Rs 40,000 cr a year